Opus CEO's Big Test: 'Extraordinarily Disciplined' Growth

Gordon, the chairman and CEO of Opus Bank in Irvine, Calif., is reluctant to talk about a third-quarter loss tied to a spike in chargeoffs in its technology, commercial and special credit divisions. He is content to stand by his past comments about the issue.

Rather, Gordon wants to focus on the steps the $7.5 billion-asset bank took in the wake of the surprise loss, such as hiring a senior credit officer and re-evaluating the overall credit culture. The goal, he said, is to make sure there are no more negative shocks.

"We're adding more talent and strength to fortify the institution," Gordon said in a recent interview. "We don't want to end up getting whipsawed in the next [downturn]. … We're going to make sure that the growth that is put on is going to be extraordinarily disciplined."

The moves seem to indicate a new stage of development at Opus, which expanded aggressively after a Gordon-led investor group recapitalized the ailing Bay Cities National Bank in late 2010.

While the immediate focus will be on credit quality and capital, Gordon will also need to show investors that Opus can maintain its entrepreneurial spirit while being more disciplined with its underwriting. For those reasons, he is one of American Banker's community bankers to watch in 2017.

"There are several things that must be immediately addressed that could change our perception of what Opus is capable of over the long term," said Tim O'Brien, an analyst at Sandler O'Neill.

"Are we entering a new phase in their life cycle?" O'Brien said. "Is this a new bank? It would benefit them if they can show that the business model isn't going to be hurt and that the potential for cash flows and earnings isn't going to be diminished."

It is widely expected that Opus will navigate through elevated credit costs in coming quarters. What is unclear is how quickly Brian Fitzmaurice, hired from City National to oversee credit, can inject more discipline into the underwriting process. Opus is also looking to wind down its technology division, where a portion of the troubled loans were originated.

"At some point we'll have no technology loans on the balance sheet," Gordon said, though he added that Opus has no plans to exit any other business lines.

"We just have to make sure to give them a lot of attention and approach them in a thoughtful way," Gordon said.

A real concern is that enhanced discipline could decelerate growth at a bank that increased the size of its loan portfolio by an average of 38% annually from 2011 to 2015. Through Sept. 30 total loans had risen by 14% this year.

"The reality is that perhaps you might see less growth ... but it will be high quality and deliver very strong credit and performance," Gordon said, declining to provide any projections. "As you watch the company ... the things we're doing now will be very constructive at enabling good performance in 2017."

While a slowdown is possible, Opus should still have plenty of potential to originate more loans, industry observers said.

"We've taken a more conservative approach on loan growth ... but there is a potential upside if the economy improves," said Brian Zabora, an analyst at Hovde Group. A push for more fee income, including the purchase of a trust company and an expansion of merchant banking, should help overall revenue, he added.

Opus isn't going to "lose its growth potential," O'Brien said, noting that the company operates in booming West Coast markets, including Southern California. "Unless we have a slowdown in the economy ... it is reasonable to think they can still compete aggressively."

The company's stock, which fell more than 13% in the weeks after it warned about the quarterly loss, has bounced back since the presidential election, rising by 25%. In comparison, the KBW Nasdaq Bank Index is up only 11% since Nov. 8.

Zabora said the recent improvement in Opus' stock price shows that investors see value and opportunity in the company, assuming it can get a firm grip on credit.

Gordon was coy when asked where he thinks Opus will be at the end of next year.

"I think you're going to have to just watch," he said. "I can say that we're keenly committed to high-quality credit performance and we're focused on delivering the earnings that we're accustomed to delivering."

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